SF Apartment : February 2016


Critical Changes

by Clifford Fried

At the end of each year, a group of landlord attorneys and professional property managers assemble at the San Francisco Apartment Association to discuss needed revisions to the Residential Tenancy Agreement (RTA). In the months preceding this assembly, members of the group review changes in the law and gather comments from SFAA members in anticipation of a lively debate as to how to revise the RTA.

The discussion this year focused on how to deal with the Kim legislation, also known as “Rent Ordinance 2.0,” which is discussed in more detail in Ed Singer’s article on page 32 of this magazine. Everyone in the RTA revision group had his or her own opinions on how to deal with the new law. Some were ready to give up and file a lawsuit against the city to have parts of the Kim legislation thrown out. Others thought they had come up with “loophole language” that would save San Francisco landlords—at least until the San Francisco Board of Supervisors and Rent Board read the new RTA provision and changed the law again.

By the end of the discussion, there was a consensus on the language in the agreement that concerns the Kim legislation, as well as other provisions that the group felt were necessary to protect landlords from the increasingly draconian laws they face in operating their rental properties. Here are highlights of the newly revised RTA.

Defining the Rented Premises
Attorneys have always exhorted SFAA members to do everything possible to control exactly who occupies their property. The failure to do so can affect a landlord’s abilities to evict and recover possession, raise rent to market rates and limit damage and excessive wear and tear to the premises. However, the ability to control occupancy is difficult, because the laws are written to take control away from landlords and to allow tenants to freely bring in roommates, subtenants and guests.

The problem is compounded by the rental housing shortage that has plagued San Francisco for years. Tenants look for ways to bring in other occupants who are in need of housing and who will share the rent. Tenant advocates, private lawyers and the rent board alike coach tenants on how to circumvent the law and avoid leases that prohibit extra occupants from moving in.

Past SFAA RTAs were drafted to impose strict controls over who can occupy the premises and to limit additional occupants—such as subtenants and guests—who could potentially claim tenancy rights under the Rent Ordinance. If used properly, the RTA was successful at slowing or stopping revolving door tenancies.

The Kim legislation will change all of this by prohibiting (1) rent increases based on the addition of occupants, even where a pre-existing rental agreement or lease permits rent increases and (2) evictions based on the addition of occupants if the landlord has unreasonably refused a tenant’s request—including refusals based on the amount of occupants allowed by the lease.

The new law says that where a lease limits the number of occupants or prohibits subletting or assignment, a landlord shall not evict as a result of the addition of additional occupants to the unit, so long as the maximum number of occupants as dictated by the law is not exceeded. The landlord cannot unreasonably refuse a request by the tenant to add such occupants.

A landlord may refuse additional occupants where the number of occupants would exceed the lesser of:

Two persons in a studio unit, three persons in a one bedroom unit, four persons in a two bedroom unit, six persons in a three bedroom unit, or eight persons in a four bedroom unit; or,
The maximum number permitted in the unit under state law and/or other local codes such as the Building, Fire, Housing and Planning Codes.
In other words, a tenant can fill his or her unit with the maximum number of persons described above and the landlord can do little to stop it.

To address this new restriction, the RTA carefully defines what is being rented at the inception of the tenancy. Landlords do not want creative tenants to transform a closet or kitchen into a “bedroom” so that additional occupants can freely move in. By having the tenant signing the lease agree that the rented unit contains a definite number of bedrooms, landlords will set the maximum number of occupants.

This new provision to the RTA will appear in Section 1 and will recite:
The Premises is a ______ (studio, 1bd, etc.) unit. No conversion of, nor any attempt to convert any other room to a bedroom is permitted, nor will any such conversion change the definition of the unit for purposes of establishing the type of unit under the provisions of the Rent Ordinance, despite or regardless of the Owner’s inaction or consent to such conversion.

There are three critical things for landlords to now keep in mind. First, draft your leases to specifically describe the unit to be rented. Second, never engage in any conduct that will create privity with an additional occupant. Third, strictly enforce the no subletting clause of your leases.

Landlords should also be reminded that intentionally omitting from the lease an original person who took occupancy at the beginning of the tenancy will not work as a “quick-fix” to circumvent the new legislation. All persons who took occupancy under the original lease will be considered co-tenants. Pretending not to recognize an additional person who moves in on day one with the person who signs the lease is not a viable strategy, and will not make the additional person a subsequent occupant.

One issue that has already been raised is whether landlords should maximize or minimize the number of “bedrooms” when they market the unit and describe it in the lease. On the one hand, more bedrooms means more rent. On the other hand, under the Kim legislation, fewer bedrooms will limit the number of occupants. This would appear to be a personal business decision for landlords that they should make in consultation with their property managers and attorneys. This is sure to be a topic of discussion at upcoming SFAA meetings.

Commencement of the Term
It can be confusing as to when a lease becomes effective and when the term begins. Some leases have a date at the top and others do not. Some leases have other dates by the signatures; the tenant’s signature date may differ from the landlord’s signature date. And there may be a specific date for the lease to commence and expire.

The new RTA continues to have commencement and expiration dates at Section 2. But new language goes on to explain:

This agreement shall be effective on the last date executed by all parties, or on the date that Owner delivers possession of the Premises to Tenant, whichever occurs first.

Landlords should insert a date that the lease term begins and a date when the tenancy will expire. Of course, where a unit is controlled by the Rent Ordinance, the tenancy will go month-to-month at the expiration of the lease. If the landlord wishes to enter into a new lease for another similar term when the original lease term expires, the tenant can be requested to sign a new lease.

No Subletting or Assignments
As a result of the Kim legislation, SFAA attorneys are now recommending absolute prohibitions against subletting and assignments. Once again, there is change to the assignment and subletting clause of the RTA. Section 17 will now say, in part:
Except as Owner is required to permit by law, Tenant may not assign this Agreement or sublet the Premises or any portion of the Premises. This obligation of Tenant is intended as a strict and absolute prohibition against subletting and assignment.

Section 17 will go on to explain that the landlord reserves all rights under Costa-Hawkins and that rent will only be accepted from the tenant who signed the lease. Section 17 will require the original occupant to notify the landlord in writing if he or she no longer permanently resides at the premises, and the failure to do so will result in liability for any rent increase that the landlord would have been able to obtain had the unit been delivered vacant.

Because an important element of the Kim legislation is to force landlords to accept additional occupants—and because it is important for landlords to try to control who occupies the Premises—Section 17 is very important. Because of the complexity and frequent changes in our local rent ordinance, any landlord who learns of a new occupant who took possession without the landlord’s knowledge or consent should seek the guidance of an attorney. Likewise, if the landlord wishes to consider a request for a subtenant, for whatever reason, consult with a lawyer first.

Scientists have found mercury in San Francisco’s fog. It may be affecting the minds of some tenants. But just the ones whose units are subject to the Rent Ordinance. SFAA lawyers are doing more and more nuisance evictions in the city. And the laws have changed to make it more difficult to get rid of a problem tenant. Newly modified Section 14 of the RTA will help:

Tenant and Tenant’s guests shall not disturb, annoy, harass, or endanger any other tenants of the Building or the Building’s neighbors. Tenant and Tenant’s guests shall not commit waste or nuisance upon the Premises, or in the Building or on the property in which the Premises is located. This shall constitute a substantial and material breach of this Agreement and shall be a just cause for eviction.

The rent board has declared that the new Kim legislation is going to be applied retroactively, so we are all going to have to be careful and vigilant in enforcing restrictions in existing tenancies under the new RTA and older agreements. It is also highly likely that the rent board will be considering new regulations that will implement and define the Kim legislation. SFAA will be providing information to its members and offering new classes in an effort to help all of you understand the new RTA and to comply with the new law.

The information contained in this column is general in nature. Consult the advice of an attorney for any specific problem. Clifford Fried is with Fried & Williams, LLP and can be contacted at 415-421-0100. ©2016, Fried & Williams, LLP. All rights reserved.